More on the economy and the health spending slowdown

In a newly released working paper, Brookings economist Louise Sheiner, examines the relationship between changes in the economy and growth in health spending.

Looking at national trends over time, the paper finds “a large income responsiveness for spending components that are more discretionary; further, the patent cliff appears to have had a significant effect on the spending slowdown.”

In addition to examining national spending data, the analysis also leveraged variation across states to explore the relationship between income and health spending.

“I find that spending is quite responsive to income, but the effect occurs fairly gradually. I find that health employment rises but health wages fall in response to negative income shocks, so part of the relationship between health spending and income may be due to the wage effect, rather than to direct effects on demand. I find that in the historical data, Medicare appears unresponsive to income growth and negatively correlated with non-Medicare spending. In the most recent period, Medicare spending growth appears to slowed more where income growth, and hence wage growth, was weaker.”

Louise Sheiner, Brookings

The paper discusses the possible mechanism by which changes in the economy might influence health spending, including “demand-side” channels that affect how much health care people seek and “supply-side” channels that affect employment and wages, investment, and provider payment rates.

More on the latest research into the health spending slowdown can be found below: